Date posted: 30/03/2020 5 min read

Are we heading to the end of cash?

In the near future, cash could be a thing of the past. But how likely is it that globally we will abandon cash altogether?

In Brief

  • Tap-as-you-go and smartphone payments are making it easier for consumers to ditch cash.
  • Despite an increase in cashless transactions worldwide, cash is still the most common form of payment.
  • While the rise of digital payments is seen as good, there are people who may be left exposed without cash.

Compiled by Amity Delaney

In the not too distant future, leather wallets could become curiosities. Just like typewriters and home telephones, a physical purse might lose its spot in a tech-driven world. Juniper Research predicted that across Europe and North America, consumer spend via digital wallets would increase by 40% to almost US$790 billion in 2019. Australians are already the sixth-highest users of electronic payments in the world, and more than one-third of Kiwi business owners in an MYOB survey said they expected New Zealand to be cashless by 2028. But how likely is it that countries around the world will abandon cash altogether?

What is driving the end of cash?

  • Technological advancements in payments such as tap-as-you-go are making it easier for consumers to pay for goods and services without cash.
  • Smartphones and mobile payments apps such as Apple Pay, Alipay and M-Pesa are making cashless transactions a more convenient option.
  • The growth in online shopping is fuelling an increase in digital transactions.
  • Digital payments are simpler than cash in making international payments.
  • New Payments Platform (NPP) infrastructure, with overlays such as Osko, is allowing cashless transactions to occur much more quickly than in the past, providing an appealing alternative to cash.
  • The cost of providing cash infrastructure is increasing thanks to falling demand for cash transactions.

How close are we to being cashless?

Despite an increase in cashless transactions worldwide, cash is still the most common form of payment across all markets. About 1.7 billion people worldwide are unbanked.

In India, 72% of consumer transactions are settled with cash despite a government push to promote digital payment providers.

Cash continues to be used for small transactions: 1 in 4 Australians use cash to pay for goods and services under A$5, compared with 1 in 20 for purchases over A$500.

Cash is also used for cultural reasons – the Tooth Fairy, for one, is yet to go cashless. In New Zealand, some groups give cash during traditional ceremonies. At Lunar New Year, friends and families in Asian cultures exchange lucky red envelopes with bank notes inside.

The US lags the rest of the developed world in giving cash the flick. Cheques are used as often as digital payments, and cash payments account for one-third of all transactions.

How we pay for goods and servicesFigure 1. How we pay for goods and services (click image to enlarge).

Sources: “The end of cash: why, when and how to flick the switch”, Economist Intelligence Unit, sponsored by EY; NAB Consumer Insight Report: “How, when & why do we use cash today?”, Oct 2018.

The generation gap in cash

  • 90% of people aged 50 and over use cash for transactions less than $5 compared with 50% of those aged 18 to 29.
  • 1 in 5 people over age 18 hold no cash at any given time.
  • 40.6% of millennials and 35.1% of Gen Z use ‘buy now, pay later’ payment methods versus 4.9% of baby boomers.
  • 10.6% of Gen Z and 10.4% of millennials use their smartphone (Apple Pay, Android Pay, etc) to pay for goods and services compared with 2.2% of baby boomers.

Sources: “Cashless customers are driving the future of payment”, NAB Business View, 26 July 2019; Roy Morgan 2018 Digital Payment Solutions Currency Report findings.

The downsides of ditching cash

While the rise of seamless and convenient digital payments across the globe can be seen as a good thing, there are some people who may be left exposed if cash is eradicated.

  • The anonymity of cash can protect citizens from unwanted attention. For example, during last year’s protests in Hong Kong, protesters could buy transport tickets with cash to avoid being tracked. This also applies when purchasing sensitive items such as medication. People who are unbanked or have limited access to the banking system, such as children and illegal immigrants, could be left vulnerable if cash is no longer a viable form of payment.
  • Many people face barriers to digital inclusion, including those with a low socio-economic status and those living in rural areas, which prevent them from adopting digital payment methods.
  • A cashless society leaves people more vulnerable to cyber-attacks.

Coronavirus’ cashless effect

The COVID-19 pandemic is driving a sudden increase in cashless transactions. Because coronavirus is spread through respiratory droplets, people are concerned an infected individual could pass on the virus through cash they handle.

Australian burger chain Chargrilled Charlie’s has announced that cash payments would no longer be accepted to help protect the health of its customers and staff. In Hong Kong and China, bank notes have been taken out of circulation and either sterilised or burned.

“The COVID-19 pandemic is driving a sudden increase in cashless transactions.”

The US Federal Reserve has been quarantining paper banknotes repatriated from Asia before recirculating them in the US financial system.

Australians and New Zealanders are in a slightly better position, as our bank notes are polymer rather than paper, so are more hygienic.

Professor Frank Vriesekoop led a 10-year study of bacteria on money at the UK’s Harper Adams University.

“We found that bacteria found on human hands are less capable of sticking to plastic banknotes compared to the old cotton-based UK pound notes; the linen-cotton mix based American dollar notes; and the washi paper based Japanese Yen notes,” he concluded in 2016. “In addition, bacteria found on human hands die-off faster when on plastic banknotes.”

But refusing to take cash doesn’t totally solve the problem. A PIN must still be inputted to authorise larger EFTPOS payments. And with panic buying occurring across Australia and New Zealand, large transactions are common.

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